Commercial real estate construction Photo: J. Albert Diaz

While Palm Beach County’s construction lending demand may not always yield the same level of attraction as our neighboring Broward and Miami-Dade counties, we are currently seeing strong activity across the county due to several key factors.

At a population of about 1.4 million and growth at roughly 1% to 1.8% per year over the last seven years, Palm Beach County will welcome approximately 25,000 new residents per year who require a place to live, work and play. This continued increase serves as a driving factor to maintaining demand for residential and commercial assets.

Current and projected interest rates are playing a significant role in pricing for this activity. The Federal Reserve’s recent statements on interest rates indicate the unlikelihood of another increase in 2019 and one possible rise in 2020. This contrasts with December predictions, which showed two  increases in 2019.

New construction in Palm Beach continues to be concentrated in the residential spec sector and in high-end luxury markets, as well as in construction projects within several other asset classes. Specifically, there is a marked demand for multifamily, smaller scale infill residential developments, self-storage projects and assisted living facilities.

While new single-family communities are in development or under construction in Palm Beach, this product type, historically for Centennial as a lender, has garnered minimal attention.

Most recently, refinancing owner-occupied properties by business owners has seen a substantial influx, leveraging their properties for continued growth or a value proposition with renovations and upgrades.

General property values are expected to continue to rise at a moderate pace, driven by limited land for development east of U.S. 441 and the trajectory of solid returns on commercial investment properties.

One factor that builders and experts cite as a contributor to a potential construction slowdown is labor shortage. While challenging at times, what has proven to mitigate this concern is experienced builders that have continual work available and use the same subcontractors on their jobs. Builders with a good reputation for paying subs on time and who have a backlog of work have fewer labor issues than those who may be new to the market.

Short-term construction financing has proven to be the best course of action as borrowers are given stability on their financing cost even while the cost of land and construction material continues to climb. The increase in construction costs and the rising cost of construction materials, especially with the tariffs on metal products from China, have increased from as little as 3% to as high at 20% in some cases.

The Palm Beach County residential spec home market is currently withstanding a slowdown in the construction real estate cycle. Over the last five years, residential spec sales have remained vibrant in certain markets and in the luxury high-end product.

Over that time period, Centennial Bank has financed more than $60 million in residential spec sales on the Island of Palm Beach. This particular market, home to many millionaires and billionaires, typically possesses the wealth to pay cash in one of the most desirable locations in Palm Beach County, if not in the entire region of South Florida.

As of this year, builders are actively moving ahead with new construction and looking for opportunities, including on the Island, even with the various elements challenging the real state sector. This is partly fueled by more and more business owners traveling to Palm Beach, for pleasure or short-term business, and deciding to make this a permanent home for their tax reasons, market prosperity and its familial environment.

Jack A. Buell Jr. is Palm Beach County market president for Centennial Bank, a customer-focused community bank with 165 branches in Florida, Alabama, Arkansas and New York. In this role, Buell is a well-established Palm Beach County banker with 25 years of experience in commercial real estate lending.